Interest Rates Are Falling. Why Aren't Credit Card Rates?
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whelan at The Wall Street Journal in New York. Interest rates are coming down, so why aren't credit card rates coming down also? We'll check in with a Wall Street Journal reporter in a moment to find out. First, some money in market news you should know. Do you have $2,467 in a rainy day fund for a medical emergency or job loss? It sounds like a very specific random number, but recent research shows that that magic number could significantly reduce the chances of experiencing hardship in the next six months. By crunching data collected from the 2009 to 2011 census, researchers found that $2,500 represented about a month's salary for the 70,000 low-income households in their sample.
Why are credit card rates still high even though interest rates are falling?
But that group only had a median household savings of about $70, and a quarter of them had no savings at all. The new research suggests that instead of the old rule of thumb to have three to six months of expenses and savings, many low-income families getting at least one paycheck stored away might make a big difference. More women are getting behind the wheel of big rigs. Female truckers still only account for about 6% of the trucking workforce, but the American Trucking Association's trade group says their numbers have jumped by more than two-thirds in the past eight years to over 234,000, One big reason? Equal pay. The trade group says that drivers are paid hourly, by the mile, or per load, but there's no distinction between genders.
Drivers are paid based on experience level and routes taken. Having a gap in your resume from a career break used to be a hurdle when applicants tried to get back into the workforce, but employers are now rushing to interview applicants who took breaks, even for as long as two years. A study by ResumeGo says that 10% of people with two gaps in their resumes were contacted by employers for follow-up interviews, only slightly lower than their competitors with no career gaps.
What short-term money and savings research should consumers know about?
The tight labor market is one factor changing the rules, but another is a cultural shift. Manpower Group says that three-quarters of U.S. workers ages 24 to 38 expect to take career breaks for passion projects, travel, or family leave. One reason may be that nearly one in three millennials plans to work beyond age 70, and nearly one in eight expects never to retire. See a list of helpful tips for returning to work after a career break at WSJ.com and the WSJ app.
Last year, as the Federal Reserve increased interest rates, your credit card rate went up as well. Now the Fed is lowering interest rates and your credit card rate is still going up? It seems counterintuitive, but it's happening. But we've got Wall Street Journal reporter Ana Maria Andriotis here to explain it for us. So, Ana Maria, the rates that lenders charge is closely tied to broader interest rates. That's not new. So why would credit card rates still be high?
Because credit card lenders are looking to make a profit and looking to make more of a profit than they were in previous years. So the one obvious way of how to do that is to increase the interest rates that cardholders are paying on their balances.
Now, you mentioned margins in your story. Can you explain what margins are and how they're pushing credit card interest rates up?
Sure. So the credit card APR, or the annual percentage rate that people pay, it is based on the prime rate, which tends to move in tandem with the Fed's rate increases and rate cuts, plus the margin that lenders set. So it's prime rate plus margin equals APR. So what's been happening to the margin is that it's been growing in recent years. And actually, as of August, that margin was at a record high. In August, the average margin that lenders tacked on to the interest rates was 11.72 percentage points. So essentially, what this rising margin is doing is that even as the Fed cuts its rates, right, so that first part of that equation, the prime rate, would be going down because the lenders are increasing the other part of that equation and raising it, right?
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:05–0:50
2
Why are credit card rates still high even though interest rates are falling?
0:50–2:02
3
What short-term money and savings research should consumers know about?
2:02–6:15
4
How has the profile of the trucking workforce changed and why does equal pay matter?
6:15–11:24
Speakers
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